The sequester, explained
Posted by Suzy Khimm
on September 14, 2012 at 2:35 pm

The White House has released its plan explaining how the sequester’s mandatory spending cuts to defense and domestic spending will be implemented in 2013. Here’s the background on what the sequester is, how it happened and what happens from here:

What is the sequester?

It’s a package of automatic spending cuts that’s part of the Budget Control Act (BCA), which was passed in August 2011. The cuts, which are projected to total $1.2 trillion, are scheduled to begin in 2013 and end in 2021, evenly divided over the nine-year period. The cuts are also evenly split between defense spending — with spending on wars exempt — and discretionary domestic spending, which exempts most spending on entitlements like Social Security and Medicaid, as the Bipartisan Policy Center explains. The total cuts for 2013 will be $109 billion, according to the new White House report.

Under the BCA, the cuts were triggered to take effect beginning Jan. 1 if the supercommittee didn’t to agree to a $1.2 trillion deficit-reduction package by Nov. 23, 2011. The group failed to reach a deal, so the sequester was triggered.

Why does everyone hate the sequester so much?

Legislators don’t have any discretion with the across-the-board cuts: They are intended to hit all affected programs equally, though the cuts to individual areas will range from 7.6 percent to 9.6 percent (and 2 percent to Medicare providers). The indiscriminate pain is meant to pressure legislators into making a budget deal to avoid the cuts.

How would these cuts affect the country?

Since the details just came out, it’s not entirely clear yet. But many top defense officials have warned that the cuts will lead the military to be “hollowed out.” Democratic legislators have similarly warned about the impact on vital social programs. And defense, health care and other industries that are significantly dependent on federal spending say that major job losses will happen if the cuts end up taking effect.

At the same time, if legislators try to avoid the sequester without replacing it with real deficit reduction, the U.S. could face another credit downgrade.

Why did Congress and the White House agree to the sequester in the first place?

The government was approaching its debt limit, which needed to be raised through a congressional vote or else the country would default in early August 2011. While Democrats were in favor of a “clean” vote without strings attached, Republicans were demanding substantial cuts in exchange for raising the debt limit.

President Obama and congressional leaders ultimately agreed to the BCA, which would allow the debt ceiling to be raised by $2.1 trillion in exchange for the establishment of the supercommittee tied to the fall-back sequester, as the Center for Budget and Policy Priorities explains. The deal also includes mandatory spending reductions on top of the sequester by putting caps on non-entitlement discretionary spending that will reduce funding by $1 trillion by 2021.

Who supported the debt-ceiling deal?

Party leaders, the White House and most members of Congress supported the debt-ceiling deal: The BCA passed on a 268-161 vote in the House, with about one-third of House Republicans and half of House Democrats opposing it. It passed in the Senate, 74-26, with six Democratic senators and 19 Republican senators opposing it.

Can the sequester be avoided?

Yes, but only if Congress passes another budget deal that would achieve at least $1.2 trillion in deficit reduction. Both Democrats and Republicans have offered proposals to do so, but there still isn’t much progress on a deal. The political obstacles are the same as during the supercommittee negotiations: Republicans don’t want to raise taxes to generate revenue, while Democrats are reluctant to make dramatic changes to entitlement programs to achieve savings.

What happens from here?

No one on Capitol Hill thinks any deal will happen before Election Day. After Nov. 6, Congress will have just a few weeks to come up with an alternative to the sequester. The challenge is complicated by the fact that the Bush tax cuts, the payroll tax, unemployment benefits and a host of other tax breaks are all scheduled to expire Dec. 31. The cumulative impact of all of these scheduled cuts and changes is what’s popularly known as the fiscal cliff. There’s already talk of passing a short-term stopgap budget plan during the lame-duck session to buy legislators more time to come up with a grand bargain.

The party of Reagan, or the party of the Club for Growth?
Posted by Greg Sargent
on February 6, 2013 at 3:07 pm

At a press conference just now, Republican officials who fear that the sequester will damage our national security trained their fire mostly on President Obama, lambasting him for putting us in a position that could compromise our military.

But no matter how much ire was directed at the President, what the presser revealed with overwhelming clarity is that the battle over the sequester has sparked intra-party tensions among Republicans — one that exposes the rift between “anti-tax Republicans” and “defense Republicans,” as Josh Green put it today.

At the presser, GOP officials like John McCain, Lindsey Graham, Kelly Ayotte, and Buck McKeon all lined up to warn that the sequester must be averted at all costs. McKeon has long been pushing for a bill that would avert the sequester with an across the board cut of 10 percent to the federal workforce.

“Our defense should not be used as a bargaining chip,” Ayotte said.

The only trouble with this line is that other Republicans have explicitly said they are prepared to use the sequester in just this way — to force the spending cuts they want. John Boehner recently told the Wall Street Journal that the sequester (and not the debt ceiling) would be the primary source of the party’s leverage in the fiscal battles to come. Paul Ryan has hinted he’s prepared to let the sequester go forward if Dems won’t agree to avert it only with spending cuts. The Club For Growth, meanwhile, is actively urging lawmakers to allow it to happen.

But at the presser, defense Republicans denounced this course of action as a threat to the country’s security, and even likened it to helping the enemy. At one point, Lindsey Graham said: “I’m sure Iran is very supportive of sequestration.”

I asked Club for Growth spokesman Barney Keller for a response. “Congress promised when they passed the Budget Control Act that if the supercommittee failed, they’d do sequestration,” he said. “We don’t think it’s at all unreasonable to do what they promised they would do.”

Asked specifically to respond to Graham’s Iran crack, Keller said: “I’m not going to stoop to that level.”

For much of the presser, Republican officials managed to keep the tension between these two wings of the party under wraps by continually directing their fire at Obama as being to blame for the current sequester threat. But towards the end of the presser, Graham explicitly targeted fellow Republicans, making the tensions explicit.

Graham said that McKeon would be holding hearings on the sequester’s impact, and then added, in a barb directed at Republicans: “After this hearing, if you feel comfortable cutting the government this way, then you have lost your way as much as the president.” Graham indignantly noted that Ronald Reagan had said government’s number one responsibility is to fund defense, and concluded: “I intend to fight for the party of Ronald Reagan.”

Democrats Seek to Stave Off $1 Trillion in Cuts
By JONATHAN WEISMAN and ELISABETH BUMILLER
Published: February 6, 2013

WASHINGTON — With at least one million jobs on the line, Senate Democrats on Wednesday said they were closing in on legislation to temporarily head off nearly $1 trillion in cuts that were already affecting Pentagon decision-making and could force significant reductions in staffing and services across the government.

Despite strong resistance from Republican leaders to new tax revenues, Democrats said that they expected the onset of federal furloughs and layoffs on March 1 to make Republicans more receptive to an emerging solution that would combine spending cuts with revenue from closing tax loopholes. Lawmakers were being spurred by increasingly dire warnings from top Pentagon officials about the implications of the automatic reductions.

“This is not a game; this is reality,” Defense Secretary Leon E. Panetta said emphatically in a speech at Georgetown University on Wednesday, as he warned that the cuts would curtail American naval operations in the western Pacific by as much as a third and force one-month furloughs for as many as 800,000 Defense Department civilian employees starting this spring.

“These steps would seriously damage the fragile American economy, and they would degrade our ability to respond to crisis precisely at a time of rising instability across the globe,” he said.

Within hours of the speech, the Pentagon announced that the pending budget cuts had forced it to delay the deployment of a second aircraft carrier to the crucial Persian Gulf, leaving only one near the Strait of Hormuz and the coastline of Iran after March. Because of the tensions in the region, the Pentagon has kept two carriers in the area for most of the last two years.

At a closed-door retreat in Annapolis, Md., this week, Senate Democratic leaders struck a populist tone. They suggested they could rally public support for a measure that would temporarily suspend the cuts by limiting tax breaks for oil and gas exploration, reducing the tax advantages for wealthy private-equity employees who pay a lower 20 percent capital gains rate on much of their income, and ending tax deductions for the cost of moving business functions overseas.

A presentation by Senator Patty Murray of Washington, who spoke along with Senators Max Baucus of Montana and Barbara Mikulski of Maryland, described the income gains of the richest 1 percent of Americans amid rising poverty and stagnating middle-class incomes.

“Republicans ultimately have to choose whether they are more interested in protecting tax breaks for Big Oil and other special interests, or protecting defense spending and the economy,” said Representative Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee.

Republican leaders are no less firm that the cuts will come into force in three weeks unless Democrats agree to equivalent spending cuts elsewhere in the budget, without tax increases.

“At some point, Washington has to deal with its spending problem,” Speaker John A. Boehner of Ohio said Wednesday. “I’ve watched them kick this can down the road for 22 years since I’ve been here. I’ve had enough of it. It’s time to act.”

While federal officials have historically warned of government disruptions to avoid cutbacks, the potential impact of the cuts is being cited by both parties. Senator John McCain, Republican of Arizona, said the military side alone would eliminate 350,000 jobs directly, and 650,000 more that depend on the government programs.

Domestic programs, from the National Institutes of Health to the Department of Education, would be hit nearly as hard. The Army would cut intelligence and surveillance aircraft and pull back on efforts to counter roadside bombs. Defense Department furloughs would potentially begin as early as April and would cut one work day a week from the Pentagon’s vast civilian work force for the next six months. The employees would face a corresponding 20 percent cut in pay.

At a House Democratic retreat in Virginia on Thursday, Representative Nita Lowey of New York is expected to lay out the domestic side. About 10 percent of the Federal Aviation Administration’s 40,000 workers would be furloughed. Because meat and poultry inspectors would be kept home, food plants that cannot operate without them would have to be shuttered. Coast Guard air and surface operations would be down nearly 25 percent.

Wait times at the nation’s busiest airports could rise as much as three hours with the furloughing of customs agents. Some 70,000 children would be dropped from Head Start. And as Republicans continue to delve into the deaths of four Americans at the American Mission in Benghazi, Libya, the State Department would have to absorb a $168 million cut to embassy security.

Both parties are showing cracks in their resolve. Some Republicans with large military installations in their districts said they could support a postponement in the military cuts while negotiations continued on a broader deficit reduction plan. Fearing for Hill Air Force Base, Representative Rob Bishop, Republican of Utah, did not rule out supporting a Senate bill that closed tax loopholes and cut spending to stave off the cuts.

“It would depend on what the details are,” he said.

Republican leaders of the Senate and the House Armed Services Committees proposed Wednesday to cancel the Pentagon cuts for 2013 by applying savings from a 10 percent cut in the federal work force over the next decade.

Most of the Armed Services Republican leaders were steadfast in their opposition to any more tax increases to resolve the impasse. After describing the situation as “desperate,” Senator James M. Inhofe of Oklahoma, the ranking Republican on the Senate committee, added, “It’s not desperate enough to raise taxes.”

The cuts were required in 2011 when a special House-Senate committee was unable to come up with a compromise plan to reduce the deficit.

But Senator Lindsey Graham, Republican of South Carolina, said both parties bear responsibility for agreeing to the cuts to force a bipartisan deficit deal that remains out of reach.

“We got into this mess together,” he said. “We’re going to have to get out of it together.”

House Democrats produced legislation that would stave off the cuts through Sept. 30 by ending direct subsidy payments to agribusinesses, eliminating tax breaks for oil and gas companies, and establishing a minimum 30-percent effective tax rate on annual incomes over $1 million.

It was irresponsible of Republicans to agree to the defense sequestration possibility in the first place. They should have known that Obama and many democrats would be willing, if not thrilled, to neuter our defense capabilities anyway. It was a stupid move.

__________________

“The American people are tired of liars and people who pretend to be something they’re not.” - Hillary Clinton

Republicans open to letting billions in sequester cuts go through figure they can blame the president if the economy goes south.

But Democrats are betting they can shift that blame right back to the GOP.

They’re so confident, in fact, that they’re already eyeing at least 10 Republican-held seats with strong military connections from Florida to California to target in 2014, after sequester cuts have trickled down to local bases where jobs are lost and voters notice.

“Republicans who are unwilling to compromise, unwilling to find solutions and are responsible for cuts to defense and jobs in their districts are going to find an unwelcome reception from voters,” said Jesse Ferguson, a spokesman for the Democratic Congressional Campaign Committee.

The Republicans can't say they weren't warned: The Congressional Budget Office said Tuesday that sequestration could cost 1 million jobs and send the country into another recession.

If anyone should know about sequestration politics, it’d be the Republicans.

Mitt Romney warned about the devastating job losses from sequestration as he toured 2012 battleground states. But the campaign last year revolved around theoretical spending cuts.

Say sequestration kicks in on March 1: then lawmakers are suddenly in a much different place, reacting to very real reductions in government services the public relies on, as well as a rippling of layoffs in the private sector.

President Barack Obama and House Speaker John Boehner both said this week they’d like to avoid sequestration, but they are worlds apart in how to address it and have shown no signs that negotiations will resume to end it. Proposals bouncing around Capitol Hill to delay the cuts have yet to build a critical majority and House and Senate leaders are still gaming out whether votes will come up on any of them.

Meanwhile, key Republicans have been speaking openly for weeks about their willingness to let sequestration take effect, regardless of the political risk they’d face at the ballot box in 2014.

“I’m a lot more concerned about trillion-dollar deficits every year stretching to infinity,” said Rep. Joe Barton (R-Texas), who also added, “That’s obviously a more indirect issue to somebody who’s about to lose their job or has lost their job, and I respect that 100 percent.”

Several polls released since last November’s election show Republicans would get the bulk of the blame if the so-called “fiscal cliff” hits, whether it be tax hikes that nearly hit on New Year's Day or the threat of a government default absent a raise in borrowing authority. If sequestration happens, House Democrats say they’ll have tangible proof that the GOP is a dysfunctional party that can’t even tie its own shoelaces on something as essential to its long-standing tradition as the Pentagon budget.

The DCCC is circulating a list of Republican members who represent districts where defense and domestic cuts could cause lasting damage and help turn the seats from red to blue, or at least force the GOP to spend money it didn’t plan on spending.

A top target is two-term Rep. Scott Rigell, whose Hampton Roads, Va., district is home to the world’s largest naval base and a defense contracting community so big it’s known as “Pentagon South.”

Other high-profile defense advocates whom Democrats see as beatable because of sequestration are House Armed Services Committee Chairman Buck McKeon (Calif.) and Rep. Bill Young, a 22-term Floridian who chairs the Appropriations subcommittee in charge of the Pentagon’s purse strings. They also are eyeing members with military bases or defense contractors in their backyards, including Reps. Andy Barr (Ky.), Dan Benishek (Mich.), John Fleming (La.), Mick Mulvaney (S.C.), Steve Pearce (N.M.), Tom Reed (N.Y.), Steve Southerland (Fla.) and David Valadao (Calif.).

Even if the targeted GOP members work to stop the cuts and cast votes to stop them from going into effect, Democrats say the Republicans’ electoral prospects could still be dragged down if enough conservatives win on forcing sequestration to happen anyway.

“If they continue with the extremism that they’ve engaged in and continue to hold our economy hostage and refuse to work with Democrats and the president to try to make sure we can move our economy forward and get the economy kicked into a higher gear, yes, I absolutely think they will suffer politically, as I think they did quite frankly in the last election,” said Rep. Debbie Wasserman Schultz (D-Fla.), the chairwoman of the Democratic National Committee.

Speaking Thursday at the House Democrats’ retreat in Lansdowne, Va., Obama challenged Republicans to come up with a compromise that turns off the automatic spending cuts while looking ahead to the next political season.

“They recognize that the sequester is a bad idea, but what they’ve suggested is that the only way to replace it now is for us to cut Social Security, cut Medicare, and not close a single loophole, not raise any additional revenue from the wealthiest Americans or corporations who have a lot of lawyers and accountants who are able to maneuver and manage and work and game the system," Obama said. "I have to tell you, if that's an argument they want to have before the court of public opinion, that is an argument I'm more than willing to engage in.”

Democrats also said sequestration would pose problems for Republicans if it started March 1 but got retroactively fixed through legislation — a strategy some in the GOP say may be their best option — because of the uncertainty in front of defense contractors.

“Even if it’s undone, they will pay a political price,” said Senate Armed Services Committee Chairman Carl Levin (D-Mich.).

Several Republicans acknowledged the political predicament that incumbents are in come 2014.

“Balancing budgets in the abstract is very politically popular, but when you specifically vote on specific cuts to programs that your constituents want, there’s a price to be paid for that,” said Matt Schlapp, the former political director of George W. Bush’s White House.

Rep. Dennis Ross (R-Fla.) said he’s safe next year because he didn’t vote for sequestration in the first place. But the second-term congressman noted the cuts — if they happen — also don’t bode well for his constituents.

“It’s awful,” he said. “What about active-duty military? What about Medicare? What about doctors? It’s not the right way to do business and it’s not the right scenario.”

Young, the Defense Appropriations Subcommittee chairman and longest-serving current House Republican, said there could be some political blowback for incumbents who have been trying to stop sequestration.

“That could be the case, but that’s not my concern. My main concern is what it does to the readiness of my country,” he told POLITICO.

Rigell, an Armed Services Committee member and among the top House recipients last cycle of defense industry campaign contributions, said he’s been “making every effort to avert or mitigate” the effects of sequestration in his district. Come 2014, he said he’ll win another term thanks to his record.

“While not minimizing this, I am saying that a member can surely navigate through it if they led well,” Rigell told POLITICO.

Schlapp said sequestration politics “are definitely tricky when it comes to communities that’ll receive less military funding.”

But he said it shouldn’t be all bad news for members considering the next election cycle should have larger economic undercurrents.

“We’re going into uncharted waters, where actually there’s an upside politically to members who say, ‘Yes I voted for cuts, including ones that helped my district,’” he said. “If there was ever a time to make that argument, 2014 has to be the best time to make it in my lifetime.”

Several Republicans said spending cuts should resonate with their voters.

“Too often, some in Washington underestimate the knowledge base of the voters,” Oregon Rep. Greg Walden, the chairman of the National Republican Congressional Committee, told POLITICO. “And from a Republican perspective, it’s a base that believes much more needs to be done to reduce the size and scope of the federal government because we can’t continue to borrow 43 cents on the dollar and survive.”

If voters are looking to pin the blame on anyone, several Republicans said Obama and the Senate Democrats should face the consequences for not agreeing to legislation passed by the House that could have already turned sequestration off.

“If you’re looking for somebody who will take it hard, I think it’s the president, because he said during the campaign, ‘Nah, it’s not going to happen,’” Sen. Jeff Flake (R-Ariz.) said.

Jim Dyer, a Republican who was House Appropriations Committee staff director, said incumbents in both parties could be at risk come 2014 if they can't stop the spending cuts.

“I think the problem you have is there’s no good way to spin this stuff,” he said. “This is not a spin-able story. This is just something that could be fixed, should be fixed. Everybody knows it, but they aren’t doing it. And that’s a pain in the ass.”

UNLESS lawmakers act by March 1, the budget sequestration process will start cutting government spending automatically — reductions that would amount to $1.2 trillion by 2021. Congress and the White House agreed in 2011 to the sequestration, and many people see it as a kind of political gimmick.

But I believe that it can turn out to be a very good thing — and that most of these cuts should proceed on schedule, though with some restructuring along the way.

One common argument against letting this process run its course is a Keynesian claim — namely, that cuts or slowdowns in government spending can throw an economy into recession by lowering total demand for goods and services. Nonetheless, spending cuts of the right kind can help an economy.

Half of the sequestration would apply to the military budget, an area where most cuts would probably enhance rather than damage future growth. Reducing the defense budget by about $55 billion a year, the sum at stake, would most likely mean fewer engineers and scientists inventing weaponry and more of them producing for consumers.

In the short run, lower military spending would lower gross domestic product, because the workers and resources in those areas wouldn’t be immediately re-employed. Still, that wouldn’t mean lower living standards for ordinary Americans, because most military spending does not provide us with direct private consumption.

To be sure, lower military spending might bring future problems, like an erosion of the nation’s long-term global influence. But then we are back to standard foreign policy questions about how much to spend on the military — and the Keynesian argument is effectively off the table.

On a practical note, the military cuts would have to be defined relative to a baseline, which already specifies spending increases. So the “cuts” in the sequestration would still lead to higher nominal military spending and roughly flat inflation-adjusted spending across the next 10 years. That is hardly unilateral disarmament, given that the United States accounts for about half of global military spending. And in a time when some belt-tightening will undoubtedly be required, that seems a manageable degree of restraint.

The other half of sequestration would apply to domestic discretionary spending, where the Keynesian argument against spending cuts has more force.

But here, too, much of the affected spending should be cut anyhow. Farm support programs would be a major target, and most economists agree that those payments should be abolished or pared back significantly. Regulatory agencies would also lose funds, but instead of across-the-board cuts, we could give these agencies the choice of cutting their least valuable programs — or, for that matter, we could cut farm subsidies even further.

Of course, much discretionary spending goes toward useful projects — building or repairing roads, for example, or research toward medical innovation. Limiting these investments would bring the Keynesian argument into play, and perhaps harm productivity, too. So we should look to substitute some areas for others — and turn to Keynesian macroeconomics for guidance.

THE Keynesian argument suggests that spending cuts do the least harm in economic sectors where demand is high relative to supply. Thus, the obvious candidate for the domestic economy is health care, and the sequestration would cut many Medicare reimbursement rates by 2 percent. We could go ahead with those cuts or even deepen them, because America has had significant health care cost inflation for decades.

We already have huge demand in our health care system, along with a corresponding shortage of doctors. And the coverage extension in the Affordable Care Act will add to the strain. In this setting, cutting Medicare reimbursement rates wouldn’t result in fewer health care services over all. Yes, doctors might be less keen to serve Medicare patients but might be more available for others, including the poor and the young. In the long run, the improved access for those groups would yield much return on investment, and would move the health care system closer to many of the European models.

In any case, these Medicare cuts would be unlikely to bring a macroeconomic debacle, and would ease long-term fiscal pressures. We could address the shortage of doctors by removing some barriers to entry into the profession, and, in possible new legislation for immigration, easing the way for more medical professionals to come to the United States.

Most generally, there is an issue of global investor perceptions. As the credit rating agencies have noted, some investors wonder whether spending cuts of any kind are possible in the nation’s current political environment. And even if the economic recovery is causing budget deficits to shrink, there are plenty of negative signals about our political ability to address longer-term fiscal concerns, which will become more severe as the population ages.

Simply accepting the automatic spending cuts of the sequestration, without modification, could look like more dysfunctional politics, too. Though many of the reductions have merit, others need orderly renegotiation so the resulting cuts aren’t just necessary acts of fiscal restraint, but also net pluses for the economy.